Bagasse is the fibrous derivative of sugar cane, that is grown on a commercial scale in many tropical and sub-tropical countries, where ideal climatic conditions are experienced. The seasonality of sugar cane presents storage problems for bagasse, since this lignocellulosic material is susceptible to degradation by a diverse range of microorganisms, mainly fungi. The decay that is brought about contributes largely to the losses of fibre in a bagasse pile. The surrounding microclimate, and conditions within the pile, needs to be carefully monitored in order to understand the factors that support the fungal populations and biochemical activity. The microclimate at the surface and inside the bagasse pile at a paper mill in Stanger (South Africa) was carefully monitored over a one-year storage period. Significant changes were noted in temperature, pH and moisture content, between the surface and the inside of the pile, as the pile aged. The data were compared to established parameters for bagasse preservation, and it was found that the temperature was lower than expected, thus promoting fungal growth. The pH was much higher (promoting bacteria and actinomycetes) and the moisture content was too low to produce anaerobic conditions. The environmental conditions in the bagasse pile at Stanger, therefore, promoted the proliferation of microbes, and consequently decay. Fungi that were present in the pile, were enumerated in order to investigate the diversity and fungal succession. There was a wider variety of species and higher numbers of fungi at the surface than inside the bagasse pile and the Shannon and Berger-Parker diversity confirmed these observations. Sorensons measure also showed that the types of fungal communities at the surface and inside the pile only started becoming similar toward the latter part of storage. When compared to models for abundance of species, conditions on the surface of the pile allowed maximum niche occupation at the beginning of storage, followed by the establishment of a mature community. The inside of the pile displayed minimal niche pre-emption followed by a state where most fungal species shared the domain. This study indicated that, as the storage time increased, the microbial communities became better established. Bagasse is rich in holocellulose, the basic raw material used for paper-making. Since there were many species of holocellulolytic fungi found growing on the surface and the inside of the bagasse pile, the activity of cellulases and xylanases were determined. These enzymes were found to be active at the surface and inside the pile. However, higher activities of both enzymes were noted inside the bagasse pile than on the surface. The higher levels of activity inside the pile, despite lower fungal numbers, suggested that fungal counts were not a clear indication of biomass or biochemical activity. It appeared that the environment on the inside of the bagasse pile promoted the establishment of specific fungal populations that bring about a high degree of degradation to fibre inside the bagasse pile.